'Good reasons' to scrap Sports Hub deal, Govt will remain open to public-private partnership model: Edwin Tong

SINGAPORE — There were "good reasons" to terminate the public-private partnership behind the Singapore Sports Hub and the decision to do so does not necessarily mean that all other such alliances will not be considered in future or that the Government would not be open to them, Mr Edwin Tong said.

The Minister for Culture, Community and Youth was explaining in Parliament on Monday (Aug 1) why the Government decided to end its 25-year contract with Sports Hub Private Limited (SHPL) prematurely, and gave a breakdown of the S$2.3 billion termination cost.

National sports agency Sport Singapore (SportSG) had announced in June that the Government will take back ownership and management of the Singapore Sports Hub from Dec 9, thus terminating the partnership 13 years ahead of time. 

Mr Tong spoke about the Sports Hub in a ministerial statement in response to Members of Parliament (MPs) who have filed questions on the decision over two parliamentary sittings.

This was the first time a Cabinet minister was addressing the takeover since news broke about the termination on June 10. Mr Tong was not able to attend the previous sitting of Parliament last month because he was down with Covid-19. 

He said that for the Sports Hub, the Government had foreseen from the beginning that "circumstances" might change as time went on, so the partnership deal included an agreed no-fault termination mechanism.

"We had good reasons to terminate the Sports Hub public-private partnership, having regard to the context, and the stage the project was at," he said. 

He added that the Government has a sound evaluation process to review the "business case, scope, lifecycle cost, implementation approach and risks for infrastructure projects". 

"For public-private partnerships in particular, a framework is in place to assess the suitability of (these alliances), including tangible outcomes, potential for downstream lifecycle cost savings, nature of project risks — which will differ from industry to industry and project to project — available private sector expertise in that area relative to what the Government can offer, and the need for flexibility or likelihood of downstream changes." 

Mr Tong said that this framework is "continuously refined and builds on the lessons learnt locally and elsewhere".

"We will therefore continue to be open to leveraging public-private partnerships as a model, where it is suitable." 

KEY REASONS FOR TAKEOVER

1. Project fell short of community-centred objectives 

The Sports Hub project helped Singapore achieve a world-class sporting infrastructure, but it did not do enough to promote community vibrancy on its premises, Mr Tong said. 

"The quality and volume of its calendar of events and programming fell short of what we had envisaged, even taking into account the private sector's interest in this project." 

The Government had wanted to see SHPL invest in the creation of its own new event intellectual properties and building on existing event properties, "but these did not come to fruition". 

For instance, apart from the Super Rugby event from 2016 to 2019, SHPL had not secured any recurring or marquee sport events on a multi-year basis.

There ought to have also been more community participation and activation around the Sports Hub, such as the National School Games, grassroots programs and activities, and family day carnivals. 

"These are programmes for which there will not likely be any or much commercial returns," Mr Tong said. However, there is an "intrinsic social value" in such community events. 

"This was where the profit-driven model of the SHPL consortium, which had worked well in the infrastructure phase of the project, was not sufficiently aligned in the current phase of the project.

"Greater emphasis was needed on community programming and driving social outcomes, even if such programs did not always resonate with commercial returns." 

Mr Tong said that the above circumstance would be difficult to change by "just adjusting some key performing indicators or trying to improve the outcomes with SHPL via negotiation".

"We had tried this for some time, but the difficulty lies in the inherent structure of the project terms."

For instance, SportSG intended to bring in ActiveSG academy programmes such as the Basketball Academy at the OCBC Arena within the Sports Hub, but "encountered resistance as such community sports programmes were not revenue-generating".

The OCBC Arena comprises two blocks of multi-purpose halls for sporting activities such as badminton, table tennis and volleyball.

The cost of hosting school sport events there were often "high and prohibitive", and meant that some costs would have to be passed down to the schools, Mr Tong noted.

"Accordingly, terminating the present arrangement, and taking over the infrastructure on a clean-break basis, would allow us better flexibility and discretion in being able to drive our policy outcomes." 

2. Changes in wider sporting and entertainment ecosystem 

Mr Tong said that one of the key reasons for working with SHPL is to rely on their expertise and networks with major international players in the sport and entertainment space.

However, he noted that over these years of partnership, the sports and entertainment sector has "grown and matured, and we are now much better placed to continue making Sports Hub a premier hub for sports and entertainment events".

He outlined several key changes: 

• SportSG's internal capabilities had grown, having "played a key role alongside SHPL to bring in major sporting events such as the Women's Tennis Association Finals, International Champions Cup and Rugby Sevens series. "As such, we have now developed the know-how and the experience to continue doing this," Mr Tong said
• Homegrown and Singapore-based companies have also matured. For example, event organisers here are now much more established and bringing in larger gigs, as well as organising large sporting events 
• Demand for sports and entertainment events has also grown. "With the recovery from the Covid-19 pandemic, there is now greater demand, both locally and regionally, for large-scale sport, lifestyle and entertainment events," Mr Tong said. 

"Overall, the limitations of the current arrangement, the changing environment, and our growing capabilities and ambition were factors we considered when deciding on terminating the partnership," he added. 

COSTS INVOLVED IN THE TERMINATION

The arrangement before the takeover meant that the Government would be paying SHPL a fee of S$193.7 million every year until the end of the project term in 2035. 

Mr Tong said that if the Government had continued this way, the total sum it would have to pay would work out to be about S$2.32 billion.

SportSG announced in June that the sum of the termination cost and the projected operating costs would be "comparable" to this S$2.32 billion.

The termination cost comprises substantially of the outstanding loan taken in respect of the construction of the Sports Hub, an expenditure that would have been incurred by SportSG had it financed the Sports Hub from the start without the public-private partnership, as well as Sports Hub's open market value. 

However, SportSG did not elaborate on the costs of these respective components. 

Mr Tong said on Monday that the "single largest component" in the termination sum is about S$1.2 billion, which is the capital spending that Government would have had to bear if it had adopted the traditional procurement approach from the start.

The remaining components of the termination cost is S$300 million, which is "primarily the fair open market value of the Sports Hub, which is commercially negotiated, and other costs, expenses and deductions". 

Thus, the sum to be paid to SHPL is around S$1.5 billion. 

The second cost is the estimated cost of running the Sports Hub after the handover, which includes future life-cycle replacement, maintenance and programming costs, and the day-to-day costs of operating the Sports Hub.

Mr Tong said that the estimated operating cost is around S$68 million a year. 

This means that the total operating costs incurred by SportSG to run the Sports Hub until 2035 would be about S$800 million. 

"If this is added to the termination sum, this makes the full projected costs of termination at around S$2.3 billion," Mr Tong said. This sum, he noted, is "comparable" to what would have been paid should the current arrangement have continued. 

"Taking the two buckets of costs to be paid for the termination — the sum to be paid to SHPL, which largely reflects the upfront capital expenditure and future operating costs — this would be a fair deal that the Government is making to take back the assets," he said. 

However, he also added that the decision to terminate the Sports Hub project was not driven by financial reasons, or to save money.

"Indeed, we do not plan to operate the Sports Hub at status quo or on the same assumptions as SHPL."

To make Sports Hub more accessible and open to Singaporeans, there will be more community programmes planned, investments will be made to bring in more world-class events and to open the venue more often to general community use.

"All of this would probably mean higher expenditures and increases in daily operating and maintenance costs," Mr Tong said.

"As such, we should probably expect our operating expenditure moving ahead to be higher than what we would incur if we merely continued with the status quo under the existing arrangement."